When the weight of the evidence is pointing in one direction as it has been for most of the last two years, it makes sense to be aggressive and take advantage of the clear trends while they're intact. However, when conditions change and the evidence becomes more mixed, a more neutral approach is appropriate. But what does that look like from a practical sense?
When the weight of the evidence is pointing in one direction as it has been from early 2016 through mid-2018, it makes sense to be aggressive and take advantage of the clear trends while they're intact. However, when conditions change and the evidence becomes mixed, a more neutral approach is appropriate. So what does that look like from a practical sense?
The new 52-week high list has been pretty scarce as of late, but Verizon's earnings announcement propelled its stock above an important level of resistance to 17-year highs, signaling further upside may be be ahead.
We don't do a lot of "earnings" plays here at All Star Options. We don't scare away from entering smart trades with defined risk ahead of earnings reports, but only if we feel there's a larger play in the cards.
However, when all the stars align, we'll consider specific opportunities.
The thing about the market is that there is no holy grail. No matter how hard you try, you're not going to find it. The holy grail does not exist. We have to weigh the evidence knowing full well that we're working with incomplete information. The idea is to accumulate all of the data and make a conclusion based on all of it, not just some of it.
Today, I want to go over a few of the divergences that have put the bulls in a precarious situation. There is a large crowd of permabull "passive" investors that are taught just to buy stocks and hope for the best. They are shown all of these sexy equity curves and told again and again how much they would have made had they invested in the S&P500 in 1950 or 1982 or whatever cherry-picked date is forced upon them.
This weekend we updated our chartbooks for Premium Members of Allstarcharts India, so I wanted to do a quick post outlining the changes to our universe of stocks since the end of the first quarter.
This weekend I was down in beautiful San Diego for the 3rd annual Trade Ideas Conference. For me, it's not just about the presentation that I give or the panel that I sit on, but the people that I get to meet or see again. That's the great part about our community: everyone's ability to share and learn and recognize that we're all in this together. As we approach the market with our own individual goals and objectives in mind, along the way we pick things up from others that help us adjust and fine tune our strategies regularly over time. My friends at Trade Ideas put on a good show, but it was the engaged audience and interactions with my fellow speakers that really made the weekend great.
Here is the video of my presentation. Shoot us an email to info@allstarcharts.com if you're interested in receiving the slides:
So far, this new corrective phase in U.S. stocks is playing out according to script: Deep down moves, interrupted by gravity-defying bounces that suddenly get saddled with lead weights which drag stocks back down with the fishes. Sorry for the horrible Godfather-inspired mixed metaphor.
In this type of environment, we want to be patient with our risk-defined positions when they go against us, yet aggressive when they go our way. This one simple mindshift will be what separates the winners in a bear market from the pretenders.
We laid out our first list of stocks we want to be short in a correction back on October 12. So far, this list is treating us well. The next name that we're ready to tackle is Cisco $CSCO.
Frank Cappelleri is one of my favorite guys to listen to. He brings a unique perspective because of a lot of his experience on Wall Street. Early in his career he spent time working at Smith Barney with legends Alan Shaw and Louise Yamada. He then experienced his first bear market after March 2000 working with former Lehman trader John Schlitz. Frank has been at Instinet, which is owned by Nomura, for a long time and is constantly in touch with some of the smartest guys in the business. I think he's as good a technician as anyone and in this episode he shows us just that. We discuss the market implications of a rising US Dollar and why he no longer has a target above 3050 for the S&P500. I was really looking forward to this conversation and we're lucky we get to pick his brain for a bit. I hope you enjoy this one!
We have not been in an environment where this was on the table for a long time. For those of you who know me, I think I've proven that I'm not one of these end of the world guys. We can probably all agree that I call it like I see it and have no directional bias. I walk around daily proud to not care whether the market doubles or gets cut in half. We just want to be on the right side of the trend.
The risk for most of the month has been skewed in favor of the bears. As breadth has gotten worse and momentum has confirmed downside pressure, I believe there is unlimited risk in the market right now. Nothing is out of the question.
For our subscribers I've discussed what we need to be seeing in terms of market breadth before stepping in and trading stocks in India on the long side (here, here, here, and here) and today's action suggests we may be on our way to getting that opportunity in the next week or two.
